Online entertainment service provider iQIYI, Inc.’s (IQ - Get Rating) revenue has increased at a CAGR of 19.6% over the past three years due to its several unique content offerings and its strength across several platforms including iQIYI Mall, iQIYI Show and iQIYI Paopao.

However, the stock has declined sharply since hitting its all-time high of $28.97 on March 23, due  primarily to a rumored ‘large block’ sell-off reported by StreetInsider.com. It is currently trading 39.2% below its 52-week high.

The company was also adversely affected by a ban in Taiwan beginning last year when the Taiwan Ministry of Economic Affairs prohibited local entities from working with mainland Chinese video streaming platforms. Furthermore, as the world’s second largest economy rapidly recovered from the COVID-19 pandemic, people began spending less time at home and on entertainment platforms in general.

Here are the factors that we think could influence IQ’s performance in the coming months:

Innovative Offerings

Today, IQ announced that  season three of its variety show Youth With You, which is currently being broadcast exclusively on its streaming platform, is a hit both domestically and overseas. The show  was ranked #1 across several leading third-party lists including Endata, Guduodata Popularity Index, Vlinkage Play Index, Piaofang, Baidu Index, and Wechat Index.

Last month, the company’s DreamVerse Studio released two interactive 4D virtual reality (VR) movies—Virus Crisis and The Mystery of Kunlun. IQ also launched Cloud Show, China’s first interactive, immersive, online, virtual performance product, last month.

Strategic Alliances

Moonbug Entertainment Ltd., one of the largest digital media companies in the world, announced last month that it had partnered with IQ and ByteDance/Xigua Video to bring the biggest kids’ program, CoComelon, to China. IQ partnered with Lajin Entertainment Network Group Limited on April 1to co-produce HACHIKO, a Chinese version of the classic Japanese screenplay Hachiko Monogatari.

On March 17, IQ also signed a Memorandum of Understanding (MOU) with G.H.Y Culture & Media Holding Co. Limited to boost its presence in the Southeast Asian media and entertainment space by opening a talent management agency in Singapore.

Weak Financials

IQ’s revenues from membership services for its fiscal year 2020 fourth quarter, ended December 31, was  RMB3.84 billion versus  RMB3.86 billion in the fourth quarter of 2019. Its revenue from its content distribution segment also decreased 8.4% year-over-year to RMB804.34 million in the fourth quarter. IQ’s operating loss and net loss for the quarter came in at RMB1.31 billion and RMB1.53 billion, respectively.

POWR Ratings Reflect Uncertain Near-Term Prospects

IQ has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. IQ has a C grade for Growth. This is consistent with analysts’ expectations that its revenue will grow 10.3% for the quarter ending June 30, 2021, but its EPS will remain negative for fiscal 2021. It has a C grade for Stability also.

Furthermore, the stock has a D grade for Quality. This is in sync with its trailing-12-month gross profit margin of 8.9%, which is lower than the industry average of 51%.

IQ is ranked #57 of 84 stocks in the D-rated China group. Click here to see IQ’s grades for Value, Sentiment, and Momentum as well.

Better than IQ: Click here to access 15 top-rated stocks in the same group.

Bottom Line

The company is highly popular due to  its original shows such as The Lost Tomb, The Mystic Nine, and Burning Ice. As  platform technology continues to advance, IQ is also expected to gain because its platform is powered by advanced AI and big data analytics. However, faced with delisting threats by the United States and growing regulatory measures domestically, we think it is wise to avoid the stock now and wait for a better macro environment. The company must also improve its offerings to retain its members amid intense competition.

IQ shares were trading at $17.28 per share on Thursday afternoon, down $0.32 (-1.82%). Year-to-date, IQ has declined -1.14%, versus a 9.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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